Impact of capital control measures on the Malaysian stock market: A multiresolution analysis
AbstractPurpose – The purpose of this paper is to examine the extent to which the capital control measures implemented by the Malaysian central bank in late 1998 had an influence on segmenting the Malaysian equity market from other major equity markets. Design/methodology/approach – The S&P 500, the Nikkei 225 Index, the STI Index and the KLSE Composite Index are considered. The discrete wavelet transform technique – “Haar” is employed to decompose the series into various time scales during the pre- and post-capital control periods in Malaysia. The decomposed series are then used to estimate the interdependence between KLSE Composite Index with the other three markets at various time scales. Findings – The empirical findings support three conclusions. First, in the pre-capital control period, Singapore is the most influential market followed by the US across all time scales in transmitting news into Malaysia. Second, after the imposition of capital controls, the spillover effects from Singapore to Malaysia have declined substantially, suggesting a reduced integration between these two markets. Finally, in the post-capital control period, all three markets appear to be imparting a similar but moderate level of influence on the Malaysian market. Research limitations/implications – To explore the return and volatility spillovers, the use of return and volatility series at different time scales provided a greater level of insight into the dynamics than the standard approaches which employ only one series in the time domain. Originality/value – The results from this paper will have potential implications for asset allocation, the pricing of domestic securities, the implementation of global hedging and trading strategies and the evaluation of regulatory proposals to restrict international capital flows.
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Bibliographic InfoArticle provided by Emerald Group Publishing in its journal International Journal of Managerial Finance.
Volume (Year): 6 (2010)
Issue (Month): 2 (April)
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